Q: Hi Tom,

Can I deduct my $8,000 Provision fee under investment expenses on my tax return?

Thanks,

Richard

A: Yes, you can. However, there might be a better place for you to deduct this. If you have a business or rental real estate, you may get a better deduction by including it as an expense under one of these categories. Your ProVision tax strategist can certainly guide you in the right direction as he/she knows your situation much better than I do.

Q: We are embarking on our Wealth Vision, using your service. Our first call is coming up next week. We are ~40 years old and really don't have any "dreams" for down the road, beyond raising our kids. I think we have been too preoccupied to dream for ourselves. What suggestions do you have for us to get us dreaming?

A: Great question. I come across this quite a bit actually. I had a student at the 3-day seminar Robert K. and I did in Sydney last fall who was 75 years old and had never done any dreaming in his life. I taught him a simple technique for dreaming. Here you go. Close your eyes. Picture that place/location where you would most want to be if time and money were not an issue. Then, think about who you are with when you are there. And what you are doing. Then, open your eyes and write this down. Most people when they do this get a very clear picture of their dream.

Don’t be shy about your dream, Mark. Dreams are meant to be big and “unrealistic” in “adult” terms. Three year olds do the best dreaming. I heard of a mother who asked her daughter what she wanted to be when she grew up. Her daughter answered, “a tiger.” Now that’s dreaming. Unfortunately school and parents have a tendency to beat the dreaming out of us. The pattern for dreaming is simple, though. Start with a wish. Then, make it real in your mind. Put it down on paper. Then, determine what goals need to be achieved in order to reach the dream.

Have fun with your dreams.

Warmest regards,

Tom

Q: Hi Tom, I am about 3/4 of the way through your School of Wealth Strategy course and have developed my wealth vision and determined I would like to invest in real estate. However, I am currently stationed overseas with the US military and do not wish to invest in foreign real estate. It will be about two years before I am back in the US and ready to actively invest. What can I do until then to advance my dream line and make me more prepared before I start actively investing? Should I start creating a wealth team including paying for a wealth coach and legal entity before I have any investment income? What are some typical shortfalls you see in clients who are seeking wealth coaching for the first time?

A: Congratulations on your decision and commitment to building your wealth. I definitely suggest you build your wealth team as soon as possible. The reality is that you don’t have to be in the U.S. to invest here. You just need a good team in place along with the internal controls, agreements and systems you put into place. I strongly recommend speaking to my team at ProVision for a good wealth coach. You can contact them at cs@provisionwealth.com. The biggest mistakes I see with clients are not getting their team in place and thinking that they need to do everything themselves. Wealth building is all about leverage and the most important leverage is using other people’s time and talents.

Warmest regards,

Tom

Brian sent in a question asking whether business start up expenses can be deducted. The answer is yes. The question is when. This year, up to $5,000 can be written off in the year you begin business with the remainder amortized (deducted) over the next 15 years. For more on this topic, go to www.wealthstrategyuproducts.com and sign up for our start up expense module under our Tax Products.

Warmest regards,

Tom

Q: Hi Tom,

My husband Josh and I are students of Robert Kiyosaki's Real Estate Investment coaching program and just finished our Wealth and Tax Coaching program with ProVision. We have found the tax coaching portion quite enlightening and had a few questions for you.

Question 1: We are in the process of setting up our holding LLC with Garrett Sutton's office. Our wealth coach recommended that we set up subsidiary LLCs in the states that we acquire real estate. Do you recommend that we set up the subsidiary LLCs ourselves, use an attorney, or go through any other intermediary? Thanks for your help!

A: I would suggest you use Garrett’s office for everything. That way you make sure that you have all of the details taken care of properly and your LLC’s function legally the way you want them to.

Question 2: We plan to primarily use seller financing to acquire multi-family real estate and transfer the property into a subsidiary LLC under the holding LLC. These acquisitions typically have a balloon payment built into the financing agreement. Would we run into any issues refinancing the property under the LLC with an institutional lender?

A: Yes you would. So the answer is that before you do the refinancing, you retitle the property to your personal name, do the refi, and then transfer the properties back into your LLC’s.

One of the great aspects of limited liability companies (LLC’s) is that we get to choose how they should be taxed. So, we can get all of the great asset protection from an LLC and still choose to be taxed as a sole proprietorship, partnership, S corporation or C corporation. Paula just had her LLC’s set up and is now asking this question:

Q: Tom we created 2 LLC's. One in the state of Fl and the other in WY. The WY LLC is the Manager of the Fl. LLC and my husband and I are the managing members of this WY LLC.

Garret structured both entities for asset protection purposes thus I want to ask you, the tax expert:

How does these entities should be taxed? FYI, the Fl LLC is for investing and holding RE (for passive income purposes) and is the pass through entity. The WY LLC is for distribution when the time comes (Fl. LLC provides a little over a thousand in cashflow and is owing us the properties and initial expenses in cash and personal credit). Should we tax them both as a S corp.?

A: I don’t know. I’m a little confused about how you are using the LLC’s and what your plans are for future investing. My suggestion would be to develop a tax strategy with a qualified tax strategist (CPA) as soon as possible. A tax strategist will ask you many questions about your business, your goals and your personal situation to determine the best use of these entities.

As a general rule, I prefer to have ProVision clients do their tax strategy before they do their asset protection strategy. The reason is that we may recommended different entities or changes to the entities that will require additional work from your attorney. You can avoid this additional legal expense by doing the tax side of your tax and asset protection strategy first.

That said, it’s not to late for Paula. She simple needs to sit down with a qualified CPA and develop her tax strategy. This strategy will allow her to reduce her taxes for decades to come. If you would like help finding a good tax strategist (CPA), please feel free to contact our office at cs@provisionwealth.com and we would be happy to refer you to someone.

Warmest regards,

Tom

One of the biggest challenges for those starting out in real estate is financing their real estate purchases. Banks prefer to lend to individuals, not entities. And they want to see as much income as possible so they can be assured their loan will be repaid.

From the investor side, the investor wants to maximize the number of properties he/she can purchase with cheap bank financing. In our last Ask Tom Live call, I mentioned to Harold that he and his wife should purchase their properties separately instead of jointly. June wants to know why.

Q: You told Harold (the farmer) that he and his wife should buy houses separately because they would be able to buy more. If they have the same pile of funds to draw upon to purchase the houses, how would they get to buy more if they did it separately and not jointly.

A: Most banks want to qualify their loans under the FHA rules. FHA guidelines restrict the number of loans held by any one borrower. If you purchase the homes jointly, you are both charged with the loans. So, you can effectively double the number of homes you can buy using cheap bank financing simply by purchasing them in the name of a single spouse. Of course, you still have to meet the income requirements of the bank, but for many couples this is a fairly easy test to meet for each spouse. So we suggest you always purchase the properties in the name of one of the spouses to maximize the use of cheap bank financing.

Warmest regards,

Tom

I presume this question relates to whether rental properties qualify as a business for tax purposes. The answer is yes. The expenses you incur related to your rental properties are deductible as a business expense against your rental income (and potentially against other income if you have a loss) so long as they meet the standard tests for trade or business expenses, namely they have a business purpose and are ordinary and necessary.

Warmest regards,

Tom

Many of our clients use Quickbooks accounting software for their investments and business. I also recommend using it for your personal bookkeeping. Mike & Della were wondering which version of Quickbooks we recommend.

I prefer that our clients use QuickbooksPro. This version allows you to do payroll and many other tasks that could be important to your tax strategy and investing. We are going to discuss how to use Quickbooks in our next AskTom LiveTax call on December 19th. Be sure to join us.

Warmest regards,

Tom

Lots of people are wondering what to do with their money in these days of a turbulent stock market and terrific uncertainty in the economy. Susan asks a question related to this that is on the mind of many:

Q: We have a very large amount of money in Ira acct I realize this is not a good position to be in. We are ages 49 & 51
We are in high tax bracket this year. If you were in this position would you take your money out and if so what would you do with it? I have a feeling you will say yes and reinvest in commercial real estate. It would be hard to stomach paying $200,000+ in penalties, taxes. Would like your best advise

A: Get educated. Before you do anything, you must have the education to be able to decide what you are going to do with the money. Next, you must have a wealth strategy. This is a plan of action to get from where you are today to where you want to go. It includes a decision about which asset class you will invest in, whether it is business, real estate, stocks or commodities. It include a decision about which type of asset you will invest in within the class you decide upon, e.g., will you invest in commercial, residential or industrial real estate.

Only when you have a clear wealth strategy can you make a good decision about whether to pull your money out of your IRA. For example, if your wealth strategy is based on investments in gold and silver, there would be no reason to pull your money out of your IRA. You can invest in gold and silver inside your IRA and defer the taxes (or eliminate them if you choose to convert to a Roth IRA). The same is true if your strategy revolves around the stock market. On the other hand, if you are investing in real estate or business, you may want to pull your money out of your IRA, pay the taxes and penalties, and reap the tax savings and investment returns that come from the leverage you can get in business and real estate.

So don’t do anything until you first have the education and the wealth strategy to know what to do. For education or If you would like help with creating your wealth strategy, feel free to call our office at 866.467.5809 or send us an email at cs@provisionwealth.com and we will be happy to give you some additional direction.

Warmest regards,

Tom